Option market quotations

Three elements are important in the purchase of an option of an option contract, namely, the strike price, maturity date of the option contract, and premium paid for the option.The strike price is fixed in the option contract.The ability of the holder of the call or put option to buy or sell at the fixed strike price provides a hedge, or speculative position.In the case of a call option, if the actual price rises substantially above the strike price, the holder can sell the currency spot at a profit.Alternatively, the holder can observe a rising premium on the call option, and sell the contract, thereby receiving a profit.The profit should be approximately the same as if the holder had exercised the option and then sold the currency in the spot market.

Based on the relationship between the strike price and spot price of the underlying currency, an option can be in the money, at the money, or out of the money.An option where strike price is the same as the spot price of the currency is said to be at the money.An option that generates profit for the holder when exercised is said to be in the money.For call option this means that the strike price is below the spot price of the currency.In the case of put options, this means that the strike price above the spot price.An option that yields a loss if exercised is said to be out of the money.In other words, the strike price is above the spot price for call options, and the strike price is below the spot price of the currency for put options.

No margin is required to buy an option.The buyer pays a premium for the call or the put and if the holder sells the option back, there should be a receipt of funds based upon the premium on that particular option at that point in time.